Rep. Stephen Lynch takes a hard look at financial bailout plan

Jon Chesto

Friday

Sep 26, 2008 at 12:01 AMSep 26, 2008 at 4:16 AM

As a member of the House Financial Services Committee, Rep. Stephen Lynch was skeptical when he first heard about the elements of the White House’s bailout plans. But Lynch says he is supportive of some changes that have taken place in Congress since the bailout proposal was first discussed.

Like many members of Congress, Rep. Stephen Lynch was skeptical last week when he first learned of the Bush administration’s $700 billion bailout plan for the financial services industry.

But Lynch also says that he has seen some elements of the plan emerge that he can support now that Republicans and Democrats in Congress have had a chance to make their own proposed revisions.

While key congressional leaders early Thursday said a tentative agreement on a bailout plan had been reached, negotiations stalled Thursday night and the plan’s future remained uncertain amid continued opposition among some Republicans, particularly those in the House. Talks were to resume this morning.

The stresses of trying to pass one of the biggest private sector bailouts in this country’s history as quickly as possible are certainly contributing to the uneasiness among lawmakers.

“I can’t get a second mortgage on my house in 10 days, and these folks are looking for $700 billion, and they want it in five days,” Lynch said of the Bush administration. “We can’t suspend Congress’ obligations under the Constitution just because they’re in a hurry.”

Lynch, a Democrat from South Boston who sits on the House Financial Services Committee, said that he was initially opposed to the plan when the draft was first released.

But Lynch said Rep. Barney Frank, a Democrat from Newton and the chairman of the financial services committee, has worked hard to ensure that there would be proper oversight of the bailout money and that the U.S. Treasury wouldn’t have unlimited discretion with the funds. The funds would be primarily used by what’s being called the Troubled Asset Relief Program to buy problem loans from financial companies so they can take the loans off their books.

Lynch said he supports a proposal to appoint an independent inspector general to monitor the treasury secretary’s authority over the bailout funds, as well as a proposal backed by congressional leaders to release the money in installments. Lynch said he hopes Congress could draft a stronger regulatory framework to oversee the debt markets before most of the bailout money is distributed.

The congressional leaders’ plan would also set standards to curb excessive compensation among top executives at companies that participate in the bailout program. Lynch said he supports compensation limits, partly because they would “draw the faith of the American people in the process.”

Lynch said he has mixed opinions about using the bailout program to help individuals who have a hard time paying their mortgages. He said such assistance is warranted when the borrower was a victim of predatory lending – those who were not informed of the full financial consequences of their loans.

“If we can discern who those people are that were hoodwinked, then there’s justification to help them out,” Lynch said. “(But) I’m not as eager as some to try to save every single person and every single business in America that made a bad investment.”

Lynch said he is keeping an open mind about the bailout plan. But he’s also not sure if the bailout will fix one of the underlying causes to the financial industry’s current mess: the nation’s weak housing market. “Buying 5 percent of the mortgages out there, I don’t think is going to turn around this market,” Lynch said.

Jon Chesto may be reached at jchesto@ledger.com.

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